UOB economist Alvin Liew now expects the Federal Reserve to maintain its current policy stance for an extended period throughout 2026, with only a single 25-basis-point rate cut anticipated in the fourth quarter of that year [1]. This marks a shift from UOB's previous forecast, which had projected two rate cuts in the second and third quarters of 2026 [1]. The revision is attributed to persistent inflation pressures and delayed signs of weakness in the US labor market [1].
Liew notes that elevated oil prices and ongoing risks in the Middle East could further postpone the Fed's easing cycle into 2027, especially if energy price spikes persist and spill over into broader consumer price inflation [1]. He states, "Investors will be on heightened alert for the possibility of further delays to the first rate cut—or even an inability to ease in 2H26 altogether—should energy prices rise sharply and persistently due to an escalation or prolongation of the Middle East conflict" [1].
Under the revised outlook, UOB now expects the terminal federal funds target rate to be 3.50% by the end of 2026, compared to the earlier forecast of 3.25% [1]. The risks, according to Liew, remain skewed toward fewer rate cuts, with the possibility that the anticipated year-end cut could be pushed into 2027 if inflation remains stubbornly high [1].
The report highlights that investors should remain vigilant for further delays in monetary easing, as persistent energy price increases and geopolitical tensions could complicate the inflation outlook and the Fed's policy path [1].
CONCLUSION
UOB's revised forecast signals a more cautious outlook for Fed rate cuts, with only one reduction now expected in late 2026 due to ongoing inflation and labor market resilience. Elevated energy prices and geopolitical risks could further delay easing into 2027, keeping investors on alert for potential changes in the Fed's policy trajectory.